00:00:00
Tom Gayner : It is a tremendous gift to work under a leader who is able to stick to the long- term. I mean, the fact of the matter is if the long- term were easy, if there were never any ruts, if there were never any bad days, well then everybody would do it. But the reason so few people do it is because you do have to endure periods like that. And to be able to have a partner who was able to stick to the ideas, to stick to the values through the tough times, well, that's what matters.
00:00:29
Hoda Tahoun: Call them change makers.
00:00:30
Clarke Murphy: Call them rule breakers.
00:00:32
Hoda Tahoun: We call them Redefiners.
00:00:34
Clarke Murphy: Join us in conversation with daring leaders who are creating extraordinary impact and driving change from around the globe.
00:00:41
Hoda Tahoun: Each episode gives you a fresh perspective on your leadership and career journey. I'm Hoda Tahoun, a leadership advisor at Russell Reynolds.
00:00:49
Clarke Murphy: I'm Clarke Murphy, the former chief executive officer and a leadership advisor, and this is Redefiners.
00:00:59
Hoda Tahoun: Hi everyone and welcome to Redefines. We have another fascinating and timely episode lined up for you today as we get to talk with somebody who is both a CEO and a highly successful investor. We're talking Warren Buffett, Charlie Munger, and Berkshire Hathaway level investing. He also has a refreshingly human- centered view of leadership and success that I think we can all learn from. Our guest today is not only an impressive leader, but he's truly a nice guy.
00:01:27
Clarke Murphy: Got to say, Hoda, I'm fascinated to meet with our guest today because if one talks about the value investing versus growth investing, we have someone who I say is values investing.
00:01:38
Hoda Tahoun: Oh, I love that.
00:01:39
Clarke Murphy: He talks about the integrity and long- term performance of leadership teams and how he looks at investing in teams and companies, both from a value and values standpoint. But most importantly, he is also a graduate of the University of Virginia, which we know gives him an enormous level of advantage from the beginning.
00:01:58
Hoda Tahoun: Of course.
00:01:59
Clarke Murphy: Not that the host here is partial in any way, but-
00:02:02
Hoda Tahoun: Not in any way
00:02:02
Clarke Murphy: ... immediate advantage if you went to University of Virginia. Just saying.
00:02:08
Hoda Tahoun: Clarke, why don't you tell our listeners who are guest is today?
00:02:11
Clarke Murphy: So our guest today is Tom Gayner, the CEO of Markel Group. And if you're not familiar with Markel, it's a family of companies made up of three core areas, insurance, the investing platform, and a holding company of diverse businesses in Markel Ventures, sometimes referred to as a baby Berkshire, it shares a similar investment style as Warren Buffett's Berkshire Hathaway. Tom joined Markel in 1990, has been instrumental in growing the company over the past three decades from a relatively small insurance company into a global conglomerate that it is today.
00:02:40
Hoda Tahoun: Tom, welcome to Redefiners.
00:02:42
Tom Gayner : Thank you very much. Glad to be here. And by the way, that's an incredibly flattering introduction that you just said about Berkshire and Buffett and Munger. That's quite aspirational, so thank you for the flattering comparison. We'll do our best to live up to it.
00:02:54
Clarke Murphy: I was going to say, Tom, no problem. You just have to live up to the flattery at this point. No problem at all.
00:02:59
Tom Gayner : Yeah, no problem at all. It reminds me of a place where I go and buy some clothes, and I know the old guy has seen me coming there before, but every time I walk in he quotes a size. He says, you must be, and I'm going to leave that blank, which is the size smaller than I really am, and I think that's just his sales technique to make me feel better when I'm about to buy some clothes. So same sort of deal on the introduction there. Thank you.
00:03:22
Clarke Murphy: But listen, all jokes aside, we both went to the University of Virginia and three of our daughters went to the university as well. So I'm happy to have another Virginian on Redefiners because we like that, it's a special part of the world, a special school. Welcome, Tom.
00:03:36
Tom Gayner : Thank you.
00:03:37
Hoda Tahoun: So Tom, you started your career as an accountant and you've been with Markel now for more than 30 years. Tell us about your journey from accountant to CEO?
00:03:46
Tom Gayner : Well, started at the University of Virginia and I went to the commerce school there and I went to work for one of the big eight accounting firms as they were known at that time, Coopers & Lybrand, which subsequently made it to the Final four as part of PricewaterhouseCoopers. My father was a CPA and I just thought that was a good way to start out. But very quickly when I was taking inventories and counting reams of paper and things of that nature and sitting in basements and being sent to all kinds of places, I realized that as an accountant I was more interested in dollars than numbers. And there was a fellow who was also an alum of Coopers & Lybrand who was a broker at a firm called Davenport & Company at Virginia. And one day he asked me if I'd be interested perhaps in joining him over at Davenport, and I said, well, that was great.
00:04:35
Hoda Tahoun: Oh wow.
00:04:35
Tom Gayner : So I made the statement that I'd be very interested in that, but I've got a few more months to go before I get the CPA certificate. And he said, " Well, we were thinking now." And I said, " Now is good." I've hung my CPA certificate up on my wall and I haven't used it since, but that was the technical way I moved from accounting to investing.
00:04:56
Clarke Murphy: Impulsive accountants, very impressive. No wonder you're doing well in the investing world. You may say that it started in joining Davenport, but I think there's a bit of lore in a story about you started invest when you were 14 years old in your own account. Talk about long- term investing. Well done. I'd love to hear your version of it?
00:05:15
Tom Gayner : Well, that is true. My grandmother was a fascinating woman and she graduated from Swarthmore College probably in the 1920s at some point. It was a time when she was a real pioneer to be a college graduate. She went to work as a school teacher. She married my grandfather and in 1966 my grandfather died and he was a small town businessman and had a 10 or 12 stock portfolio. And she kept those 10 or 12 stocks that he owned for the rest of her life. And the good news about those 10 or 12 stocks, one of the companies was Lockheed Martin and the other was Pepsi. And those did so well that what happened to the others didn't matter.
She was also keenly interested in markets and finance. She read The Wall Street Journal on a regular basis and on Friday nights when I couldn't get a date, I would sit there with my grandmother side by side and we would watch Wall Street Week with Louis Rukeyser. So coming along as a fifth, sixth, seventh, eighth grader, we used to have that as a Friday night ritual. I think by that point I was working part- time in my father's liquor store, and I could see that if you put all the money you made into a IRA, you didn't have to pay taxes on it. So I think I made about $ 750 that year and I put all of it in an IRA and I still have that IRA today and have contributed to it over the years. And fortunately as things stand right now, it has more than $ 750 in it.
00:06:39
Hoda Tahoun: I really love how your early exposure to books and your grandmother's influence really shaped your work today.
If we switch gears for a second and think about Markel, it was founded in 1930 as an insurer of jitney buses and has grown substantially over the last 90 years. So kind of on that theme of compounding and growth, the company's maintained a consistent North star using the Markel style. Can you talk to us a little bit about that? Why is it critical to the company's success?
00:07:08
Tom Gayner : It is absolutely critical to the company's success, and it's really our statement, our creed, our belief. And Sam Markel started the company in the 1930s. He ran it for many years. He had four children who ran it after he died. Third generation were 12 cousins. Three of those 12 stepped up to run the business at that point, and that was Alan Kirschner, who was a cousin- in- law, and Steve and Tony Markel. And the three of them with great foresight recognized that a day would come when neither one of them would be running the company, but they wanted the company to continue.
So Alan took the responsibility to be the primary author, but Tony and Steve edited it and contributed. They wrote down the core values of what it meant to be part of this company. Zealous pursuit of excellence, hard work, keeping a sense of humor, laughter being a place where individuals could realize their highest potential and winning, all of those phrases and words can be found in the Markel style.
At the time that was written, it was 1986, so we were a small, tiny by today's standards insurance company. And the curious thing about that statement is that the word insurance is not in there. So Alan was open- ended in his imagination of what Markel could be and recognized that look, if we have these values and this is the way we're doing things, while insurance is the business we're in today, who knows where the future might lead? So he left that open- ended. And as the fellow who has been the one who has pushed the boundaries of what Markel does, very grateful for the fact that he left an open- ended statement there for us. So I'm grateful that Alan embraced the Jeffersonian view of creating an infinite space because we're taking every inch of it.
00:08:54
Clarke Murphy: I'd love to challenge you a bit on that open- ended imagination. As somebody said to me recently, they don't give prizes for second place on Wall Street. So talk about when Markel and you got tested by not strong performance because we're giving you the kudos of the long- term, which of course matters the most in investing. But there are bumps in the road and there could be a moment when they say, " To heck with this open- ended values matter and culture, you need to post the numbers this year." When did those moments arrive and how did you handle that?
00:09:25
Tom Gayner : We're not immune to looking at the numbers and perhaps having some dissatisfaction with them from time to time. But there's one specific story that I'll tell exactly to your point. So starting out here in 1990, for the first five, six years, our investment performance was very good and that putting of numbers on the board for 4 or 5, 6, 7 years in a row really did give me some time and space and license and credibility to endure a time when things got a little harder. So when you get to the end of the nineties, and I'm going to be imprecise about the dates here because to some degree I guess I like to black out the memory, as a value- oriented investor, I went through the biggest period of professional underperformance that I ever had. The gap between what was happening in the markets writ large versus our portfolio was really widening out in a very non- flattering and unhappy way.
And I'm going to give a lot of credit to Steve Markel because he exhibited one of the great exercises of leadership that I've ever been privileged to be part of, and that is Steve's office was right next to mine. So we would talk every day, but we did have a formal meeting once a month where I would bring in the details of the portfolio and talk about what we bought or what we had sold and talk about of our top holdings, any particular news, any developments, any changes in management, things of that nature. And Steve, and I will forever be grateful to him, would look at me at the end of that meeting and he would say, " I understand what you're doing and why you're doing it, and I understand what you're not doing and why you are not doing it. See you next month."
So there really was an 18 to 24 month period where the meetings ended like that every single month. That is a tremendous luxury. It is a tremendous gift to work under a leader who is able to stick to the long- term. I mean, the fact of the matter is if the long- term were easy, if there were never any ruts, if there were never any bad days, well then everybody would do it. But the reason so few people do it is because you do have to endure periods like that. And to be able to have a partner who was able to stick to the ideas, to stick to the values through the tough times, well that's what matters. Everybody sticks with it during the good times. It's the tough times when you start to know.
00:11:41
Clarke Murphy: You are known for your values, aside from the flattering introduction, but you are, you're known for integrity trust, but you're also known because you like to win. There are also moments when you think I can make money on that investment, either short or medium term, but I might not believe in it. You had those moments and what do you do then?
00:12:01
Tom Gayner : Yeah, I guess well, at age 61, the temptation of that continues to diminish as each year goes by. And earlier on in my career, somebody asked, " Tom, why are you such a long- term guy? Why are you such a long- term investor?" And I would confess because I felt so miserably as a short- term investor, I'm not against making money quickly, I just don't know how to do it.
The other thing is frankly, if you really do the math, the 12- month periods, the calendar year kind of marking, that's really an artificial convention. So what does one trip around the sun have to do with a company or a business? It's just an artificial way of describing things. What you really should do is you should embrace the discipline of net present value. So in any kind of decision, if you just want to be purely rational, you're faced with a decision, there's certain money out, there's money that comes back in, there's a discount rate at which you would compare the ultimate returns from the money you lay out. On day one when you're laying money out, that almost always looks like a negative decision or a negative cost. But if it creates future returns for a year, two years, five years, 10 years, you can look at this at what looks like a sacrifice or a short- term pain point is not that at all. It's the wonderful opportunity to plant a seed that's going to grow and become something substantial over a long period of time and something that produces way more than what the cost of that seed is.
00:13:26
Hoda Tahoun: It's such a fantastic way to think about long- term growth. And on that note, Markel went public in 1987 and the stock was valued at $ 8 a share. Today it's more than $1, 400 a share. The growth clearly didn't happen overnight and it's been steady, it's been persistent for more than three decades. And you're known to have that steady, consistent approach with long- term investing. How does that mindset also impact your approach to leadership?
00:13:56
Tom Gayner : Well, before we go down that path too much, the other person who deserves a tremendous amount of credit and an assist on the scoreboard for making this happen is my wife Susan. So in the early days of Markel, she was gainfully employed as a chemical engineer at the DuPont Company. So I always sort of had in my back pocket knowing that if I fail and do a complete face plant, I don't think I'm going to starve because my wife would carry me. And from time to time she has, I can't remember whether it was Charlie Munger or Charlie Munger quoting Ben Franklin who said, " It's this hard for an empty sack to stand upright." So I have just always been so fortunate and blessed to be surrounded by people who were on my team and made sure that the sack was never completely empty.
Tying that to your point of leadership, I wrote a memo to our board just last week and I talked about one of my jobs as the CEO is to help our people operate in an environment of psychological safety. We're all human beings, we all make mistakes. But if those mistakes were made with integrity, with good intentions, with learning, that's okay. I forgive you. It's okay. What did we learn from that? How will we do it differently next time? How will we get better because we made that mistake?
I find what someone will demand of themselves, if their heart is in the right place, is infinitely more than what you can ever demand of them. So to have an environment of psychological safety and people know that we care, we're in this for the long term, we're going to take care of our customers, we're going to take care of each other. We do need to win over time, but that's about as tight as we're going to be on the specs. I find that that creates a more high performing organization than would be the case if we tried to hold the horse with tighter reins than that.
00:15:48
Clarke Murphy: Our listeners will chuckle it because we have said consistently that a theme of what we call LQ, learning quotient, it was the organizations that continue to learn or executives who themselves continue to learn and lead from the front separates good companies from great, we believe in the last decade or so because change is happening faster, whether it's technology, whether it's investing, whether it's operations, but technology has changed the world and other things were a fad. How do you decide between the two as an investor?
00:16:24
Tom Gayner : Well, you work at it every day and you remain humble and whatever judgment you make and say it's subject to change. When you reach a conclusion, the other thing that you can describe a conclusion as is stopping thinking. So therefore, conclusion should be interim at best, and you should never turn off your curiosity and your desire to keep thinking. So whatever conclusion you draw about something like that, that is relevant as of one second ago. One second into the future might change. Stay flexible.
00:16:53
Hoda Tahoun: I love that.
00:16:54
Tom Gayner : In addition to holding myself to that standard, I can't hold the people, the organization to a different standard, that would be hypocritical and ineffective at the same time, and in fact, it would poison the organization. So when somebody has a point of view or comes to a conclusion and they have responsibility for making a decision based on the best available information they had at that time, I have to say, great, I trust you. Morgan Housel, who's on our board, says nobody is irrational from their point of view.
00:17:24
Hoda Tahoun: What are the criteria that you use to make investment decisions? What does a typical deal process look like? And I'm sure our listeners are going to be very curious to hear, how do you define fair price on a deal?
00:17:39
Tom Gayner : Sure. Well, I was smiling a little bit when you talk about typical situations because they seem relatively one- off and the old joke, once you've seen one, you've seen one. For a long time, the way in which we described how we make equity decisions in terms of buying public equities is we look for good businesses that have good returns on capital that don't use too much debt. Screen number one. Screen number two, management teams with equal measures of talent and integrity. Screen three, what are the reinvestment dynamics of a business? If they do well and they make money, what happens next? What can they do with the money they make? And fourth, can we do this at a fair price?
What I'd describe as a fair price, as a price that if I own the business and have nothing but the intrinsic returns of the business to create future returns, did I earn a reasonable profit and a reasonable rate of return from the business itself? If it does everything you hope, but you end up not earning a reasonable rate of return, that means you paid too high a price. Now similarly, a lot of time and effort is expended in the investment world on the work of valuation, and that's appropriate. That is as it should be. But I think that can tip over a little bit into too much focus on valuation and not enough on what the recurring internal intrinsic returns of the business are. Because if you pay what on the surface might appear to be a great price in the long run, if that business is not doing well, you're not going to earn a great return despite the fact that your math at the beginning looked pretty good.
Somebody says, " Well, what's the right price for this business?" You should answer a question with a question and you should say, what is your time horizon? Because if you look at the volume of trading of publicly traded securities, most securities that are bought and sold are not held for even a year. So even that 12 month convention would be way longer than what people are really actively doing in their buy and sell decisions. But if your time horizon is three years or five years or 10 years or longer, you start thinking about the business differently. And as a consequence, the math you would do would tend to be a little bit different than what others might.
00:19:58
Hoda Tahoun: That's so interesting, Tom. I really love that. And again, we're talking about the talent and the integrity piece as one of the key components of how to really think about a deal.
00:20:09
Tom Gayner : Again, lifted from buffet, almost word for word. And the way I would think about it or phrase it with my own twist is if you have somebody who has integrity, they're solid, but they're not that talented. They may be very nice people, they may be great neighbors or friends, but they don't have the talent to get the job done. So that only does you so much good. If you have people who are talented, who are great and skilled, but there's an integrity leak, well that's not going to end well, especially for passive shareholders in a publicly traded company. So we have no control. Or even frankly in our business itself, we have 20 some thousand people at Markel. I'm just one person. Can't do it all, can't do much of it. The vast majority of the work is done by other people. So they need to be talented and skilled at what they do and they need to have integrity such that we as partners of one another are treated fairly. And I think the good news about treating your partner fairly is that you in turn will end up being treated fairly yourself.
00:21:10
Hoda Tahoun: Such a great point.
00:21:12
Clarke Murphy: We'll be right back with Tom Gayner, but first we'll hear from Kurt Harrison, the managing director in our New York office. He'll outline why even though sustainability progress is being made, there are four common gaps that CEOs must bridge to be successful.
00:21:27
Kurt Harrison: Organizations the world over are increasingly committing to sustainability, something that seemed impossible just a decade ago. Did you know that a massive 80% of leaders now say they have concrete sustainability plans? That's according to our recent Divides and Dividends research. The big question now is how do you deliver on those promises? We know that in order for tangible progress to be made, sustainability needs to be integrated across an entire organization from strategy and operations to the daily decisions that leaders and frontline employees alike make. And yet our research has unearthed four distinct gaps in thinking and skillset that, unless addressed, will prevent leaders from doing this. Those four gaps are the motivation divide, the leadership divide, the accountability divide, and the mobilization divide. To get a deeper understanding of these gaps and how world- leading CEOs are bridging them. Click on the link to our Divides and Dividends research in the show notes.
00:22:33
Clarke Murphy: And now back to Tom.
You talk about return without too much leverage. So in the practical nature of this podcast, rates are up, a lot of leverage in the last decade, some of it fixed, some of it floating. Talk about leverage in today's world, in tomorrow's world, we're not asking predictability on interest rates. Talk about businesses you invest in and how much leverage is appropriate?
00:23:03
Tom Gayner : Well, I think this is a fascinating question and frankly it's one of the most topical and important in the investment landscape. So for a long time, really for a generation almost, leverage almost didn't matter because we've gone through a generation of where interest rates were just going lower and lower and lower all the time. I started talking about this with our board a number of years ago, and the analogy that I came up with at that point was interest rates are really a form of curfew and it's sort of an inverse form of curfew.
So when I graduated from UVA, I think our first mortgage and we bought a house immediately coming out of school, I don't know, it was something like 15%. It was insane. And every penny we had went to that mortgage. And a 15% interest rate is like having a 6: 00 PM curfew. So what that means is when you come home from school, you barely eat a little supper and you're done. You do your homework and you go to bed, there's nothing. Well, those interest rates came down and maybe they went from 15% to 10% or something like that, maybe that's a 7: 30 or 8: 00 PM curfew. So maybe you could come home and go outside and play with your friends a little bit. But really nothing bad was going to happen. And as interest rates kept going lower and lower, in essence, the curfew got later and later to the point where we got to, in effect, 0% interest rates, negative interest rates in Europe, that's like no curfew whatsoever. And no curfew whatsoever, bad things can happen.
00:24:32
Hoda Tahoun: Interest rates is curfews. What a great metaphor. Okay, so now for the question we ask all our guests, what is your redefining moment?
00:24:42
Tom Gayner : Well, the late nineties were one of them. When I got so out of whack with the markets and I told you that story about Steve, I also pursued some desperation learning moves. So for instance, I signed up for this class at Northwestern at that point, which was an investment analyst class. I thought maybe did I miss something? So I remember going to that class and it was a two- week period of study and at some point there was a professor in there and he was going through the discounted cashflow model techniques, and I knew what those were. And he pulled up The Gap Stores. I don't know if you remember this, but in the late nineties The Gap was white- hot and khakis were the thing. And they had the people in khakis dancing.
00:25:27
Hoda Tahoun: I remember that.
00:25:27
Tom Gayner : So he had this discounted cashflow valuation model up on the board and he was going through the gap and he was making these assumptions of what your growth rates would be and what the ultimate discount rate of growth rate would be. And I looked at it and I said, " Excuse me, Professor, but I understand the mechanics of this, but those growth rate assumptions just seem wildly high for a business like that, which admittedly is doing quite well, but I just can't get comfortable in making 5, 10, 20 year assumptions that that would continue to be the case." And he really wouldn't engage with me on that.
So he pushed back. This two week class that I was going to take, I think this was on day four, and I got such a swirling headache from trying to argue with him that I literally walked out of the class and didn't go back. Because I said, I know how to do discounted cash flows. It's the assumptions that really determine whether those were useful models to you or not. So I went and watched the Cubs baseball game instead and did not invest a Gap, and that was a transformative moment for me that sometimes the things that are mathematically justifiable and can be written out and displayed and modeled on a spreadsheet may or may not be truthful. As someone said, the map is not the territory. I think Munger says, " All models are wrong. Some just happen to be useful."
00:26:53
Clarke Murphy: But equally, you trusted your gut is what I hear also.
00:26:57
Hoda Tahoun: Yeah.
00:26:57
Tom Gayner : Well, I just thought I wasn't insane and it was a complete sanity check. So it was something that either could or could not be true. For a while, Walmart had a period of time when it was an extraordinarily rapidly growing company and they were expanding their footprint, but it was no secret to the marketplace. So the stock was going up, the earnings were going up, everything was up, up, up, up, up, and we were on the sidelines. We did not own it. We should have. I calculated that every single man, woman and child in America would need to be spending $ 60 a day at Walmart for those numbers to come true. And I just didn't think that could happen. Now, it went on for a while, but it didn't go on for 20 years or 10 years. So just to be able to detach yourself from the frenzy of day- to- day stuff and get back to those 10 to 20 year kind of time horizons, it changes your decision- making process fairly profoundly.
00:27:52
Hoda Tahoun: I think it's such a great point. Tell us about how you look at the pendulum of optimization versus satisfaction.
00:28:01
Tom Gayner : Well, those two can get in the way of one another and the folk wisdom saying is best is the enemy of better. The business of investing, of people, of psychology, of emotion, of irrationality, that's not an equation that can be optimized in my opinion. A lot of people try and a lot of people have tremendous academic credentials and ability to crunch a lot of numbers working towards optimizations. But I think being a reasonably good satisfier gets you into the 80th percentile and you use some of those tools, but not all of them. And you're humble about recognizing their limits such that you can say sometimes this is good enough and be comfortable with that and let a little time pass to show you what the answer ultimately is. I do not know how to hold myself to the standard of pure optimization in the markets because I just don't think that that's a reasonable standard.
At the same time, there can be a tendency, and my colleagues appropriately tease me about this, as does my wife, satisfaction can be an excuse for laziness. So to say it's good enough when it's not is an equal and opposite error. So you have to have some discipline, you have to have some rationality about that. You have to have some north star that guides you and both that can be the things you read, the things you understand, the things you know to be true. And to have people in your life who you are willing to let them tell you the truth and to be vulnerable to them and not hide or not be unwilling to hear bad news. That's very important to have people in your life that you can trust to tell you the truth.
00:29:47
Hoda Tahoun: Such a great point. So Tom, we like to end each podcast with some rapid fire questions. This is where we'll ask you a series of questions and you respond as quickly as possible. Are you ready?
00:30:01
Tom Gayner : We'll find out, won't we?
00:30:03
Hoda Tahoun: Okay, let's get started. When was the last time you were wrong and what was it about?
00:30:08
Tom Gayner : There's so many answers to that. I don't even know where to begin. Probably the last time I was wrong today was with my choice of breakfast, but I'm going to leave that at the rules.
00:30:18
Clarke Murphy: Who was your mentor that had the biggest impact on you?
00:30:20
Tom Gayner : My father.
00:30:21
Hoda Tahoun: And what do you think is the key to living a good life?
00:30:25
Tom Gayner : Live each day, embrace each day. And I think there's actually a fair amount of substance to that. For instance, I was reading something recently that talked about the difference between goals and systems. And common goal would be lose 10 pounds. Everybody's had that goal somewhere along the way, including me. But if you think about it, every second that goes by that you haven't lost 10 pounds, you're a loser, you've not accomplished your goal, that creates negative psychological energy among other things. It's way, way, way more productive to have a system that encompasses what you eat, how you exercise, how you take care of yourself that probably would support good health. And by the way, you might drop 10 pounds if you follow the system. So really for a lot of things in life as opposed to just stating some sort of goal, thinking one step further and thinking what sort of habits, what sort of behaviors, what sort of actions, what sort of things to not do would be supportive and helpful in making that good thing, which you call a goal, more likely to happen than not.
00:31:28
Hoda Tahoun: I love that, Tom. So really what you consistently think, do, believe, et cetera ends up becoming the recipe for that life? I know a number of globally renowned coaches who really talk about this topic from Dr. Joe Dispenza, Mel Robbins, David Goggins, they all talk about this as being the cornerstone of how to build the life and curate the life that you want.
00:31:54
Tom Gayner : What you do is who you are.
00:31:56
Hoda Tahoun: Yeah.
00:31:57
Clarke Murphy: Absolutely.
00:31:57
Hoda Tahoun: Absolutely.
00:31:58
Clarke Murphy: Tom, we can't thank you enough. You've helped us redefine a little bit about long- term and short- term. And I find it really interesting that your start in the investing business in the firm you joined we're both G3. Your grandmother made you a third generation and she taught you to think about investing in the long term. And then you join the Markel family where the third generation defined as they went for permanent capital in writing what were the values and what would be the values of how Markel would operate. And while we talked about winning and trust and high potential in laughter is the undercurrent of how a great company will perform, Steve Markel left it open- ended enough to say that we don't know where the future will lead us, so we have to adapt. Not many companies, when defying themselves, can leave it open to who they might become later on.
And we think about long- term and short- term performance. Your success was when you underperformed in the short term, you had the greatest gift there could be in a company which is a boss who said, " I back you." You went into your boss and said, " Here's what's happening. It's not working right now." And he said, " I understand why and why not. You keep going." And whether it was your wife's partnership and giving you confidence or your boss's trust, knowing you were fully supported, helped you do the right thing. And you've now created this environment of psychological safety that people can make mistakes and learn from them. You're giving them the long- term confidence that others have given to you, which is the real learning here. And that's a culture of a high- performing organization. When we think also about performance over time, you talk about talented people, but if they don't have integrity, it's not going to end well. And that fair treatment gets fair treatment, and ultimately, talent, integrity can match up and end well if they're aligned.
The last thing I'd say as we learned from you is about trusting your gut. The model might be taught by the great professor at a great school, but take a sanity check and say, does this make sense to me? Don't fall into the trap of saying, well, we're doing well so we're okay. Adapt along the way, or you'll become satisfied and lazy. And your habits and how you approach life from a systemic standpoint are more important day- to- day to achieve a goal than just setting a goal and saying, did I win or did I not? Tom, this is fantastic. People should listen and learn from this one.
00:34:28
Hoda Tahoun: Thank you so much, Tom. It was amazing.
00:34:30
Tom Gayner : Thank you. It was delightful to be with you.
00:34:32
Clarke Murphy: Thank you for joining us, Tom.
00:34:35
Hoda Tahoun: Thanks for joining us on this episode of Redefiners. For more compelling insights from leaders across industries and around the world, listen to Redefiners wherever you get your podcasts and
00:34:46
Clarke Murphy: To learn more or to get in contact with us, visit our website russellreynolds. com, find us on LinkedIn and follow us on Twitter @ RRAOnLeadership.
Tom Gayner : It is a tremendous gift to work under a leader who is able to stick to the long- term. I mean, the fact of the matter is if the long- term were easy, if there were never any ruts, if there were never any bad days, well then everybody would do it. But the reason so few people do it is because you do have to endure periods like that. And to be able to have a partner who was able to stick to the ideas, to stick to the values through the tough times, well, that's what matters.
00:00:29
Hoda Tahoun: Call them change makers.
00:00:30
Clarke Murphy: Call them rule breakers.
00:00:32
Hoda Tahoun: We call them Redefiners.
00:00:34
Clarke Murphy: Join us in conversation with daring leaders who are creating extraordinary impact and driving change from around the globe.
00:00:41
Hoda Tahoun: Each episode gives you a fresh perspective on your leadership and career journey. I'm Hoda Tahoun, a leadership advisor at Russell Reynolds.
00:00:49
Clarke Murphy: I'm Clarke Murphy, the former chief executive officer and a leadership advisor, and this is Redefiners.
00:00:59
Hoda Tahoun: Hi everyone and welcome to Redefines. We have another fascinating and timely episode lined up for you today as we get to talk with somebody who is both a CEO and a highly successful investor. We're talking Warren Buffett, Charlie Munger, and Berkshire Hathaway level investing. He also has a refreshingly human- centered view of leadership and success that I think we can all learn from. Our guest today is not only an impressive leader, but he's truly a nice guy.
00:01:27
Clarke Murphy: Got to say, Hoda, I'm fascinated to meet with our guest today because if one talks about the value investing versus growth investing, we have someone who I say is values investing.
00:01:38
Hoda Tahoun: Oh, I love that.
00:01:39
Clarke Murphy: He talks about the integrity and long- term performance of leadership teams and how he looks at investing in teams and companies, both from a value and values standpoint. But most importantly, he is also a graduate of the University of Virginia, which we know gives him an enormous level of advantage from the beginning.
00:01:58
Hoda Tahoun: Of course.
00:01:59
Clarke Murphy: Not that the host here is partial in any way, but-
00:02:02
Hoda Tahoun: Not in any way
00:02:02
Clarke Murphy: ... immediate advantage if you went to University of Virginia. Just saying.
00:02:08
Hoda Tahoun: Clarke, why don't you tell our listeners who are guest is today?
00:02:11
Clarke Murphy: So our guest today is Tom Gayner, the CEO of Markel Group. And if you're not familiar with Markel, it's a family of companies made up of three core areas, insurance, the investing platform, and a holding company of diverse businesses in Markel Ventures, sometimes referred to as a baby Berkshire, it shares a similar investment style as Warren Buffett's Berkshire Hathaway. Tom joined Markel in 1990, has been instrumental in growing the company over the past three decades from a relatively small insurance company into a global conglomerate that it is today.
00:02:40
Hoda Tahoun: Tom, welcome to Redefiners.
00:02:42
Tom Gayner : Thank you very much. Glad to be here. And by the way, that's an incredibly flattering introduction that you just said about Berkshire and Buffett and Munger. That's quite aspirational, so thank you for the flattering comparison. We'll do our best to live up to it.
00:02:54
Clarke Murphy: I was going to say, Tom, no problem. You just have to live up to the flattery at this point. No problem at all.
00:02:59
Tom Gayner : Yeah, no problem at all. It reminds me of a place where I go and buy some clothes, and I know the old guy has seen me coming there before, but every time I walk in he quotes a size. He says, you must be, and I'm going to leave that blank, which is the size smaller than I really am, and I think that's just his sales technique to make me feel better when I'm about to buy some clothes. So same sort of deal on the introduction there. Thank you.
00:03:22
Clarke Murphy: But listen, all jokes aside, we both went to the University of Virginia and three of our daughters went to the university as well. So I'm happy to have another Virginian on Redefiners because we like that, it's a special part of the world, a special school. Welcome, Tom.
00:03:36
Tom Gayner : Thank you.
00:03:37
Hoda Tahoun: So Tom, you started your career as an accountant and you've been with Markel now for more than 30 years. Tell us about your journey from accountant to CEO?
00:03:46
Tom Gayner : Well, started at the University of Virginia and I went to the commerce school there and I went to work for one of the big eight accounting firms as they were known at that time, Coopers & Lybrand, which subsequently made it to the Final four as part of PricewaterhouseCoopers. My father was a CPA and I just thought that was a good way to start out. But very quickly when I was taking inventories and counting reams of paper and things of that nature and sitting in basements and being sent to all kinds of places, I realized that as an accountant I was more interested in dollars than numbers. And there was a fellow who was also an alum of Coopers & Lybrand who was a broker at a firm called Davenport & Company at Virginia. And one day he asked me if I'd be interested perhaps in joining him over at Davenport, and I said, well, that was great.
00:04:35
Hoda Tahoun: Oh wow.
00:04:35
Tom Gayner : So I made the statement that I'd be very interested in that, but I've got a few more months to go before I get the CPA certificate. And he said, " Well, we were thinking now." And I said, " Now is good." I've hung my CPA certificate up on my wall and I haven't used it since, but that was the technical way I moved from accounting to investing.
00:04:56
Clarke Murphy: Impulsive accountants, very impressive. No wonder you're doing well in the investing world. You may say that it started in joining Davenport, but I think there's a bit of lore in a story about you started invest when you were 14 years old in your own account. Talk about long- term investing. Well done. I'd love to hear your version of it?
00:05:15
Tom Gayner : Well, that is true. My grandmother was a fascinating woman and she graduated from Swarthmore College probably in the 1920s at some point. It was a time when she was a real pioneer to be a college graduate. She went to work as a school teacher. She married my grandfather and in 1966 my grandfather died and he was a small town businessman and had a 10 or 12 stock portfolio. And she kept those 10 or 12 stocks that he owned for the rest of her life. And the good news about those 10 or 12 stocks, one of the companies was Lockheed Martin and the other was Pepsi. And those did so well that what happened to the others didn't matter.
She was also keenly interested in markets and finance. She read The Wall Street Journal on a regular basis and on Friday nights when I couldn't get a date, I would sit there with my grandmother side by side and we would watch Wall Street Week with Louis Rukeyser. So coming along as a fifth, sixth, seventh, eighth grader, we used to have that as a Friday night ritual. I think by that point I was working part- time in my father's liquor store, and I could see that if you put all the money you made into a IRA, you didn't have to pay taxes on it. So I think I made about $ 750 that year and I put all of it in an IRA and I still have that IRA today and have contributed to it over the years. And fortunately as things stand right now, it has more than $ 750 in it.
00:06:39
Hoda Tahoun: I really love how your early exposure to books and your grandmother's influence really shaped your work today.
If we switch gears for a second and think about Markel, it was founded in 1930 as an insurer of jitney buses and has grown substantially over the last 90 years. So kind of on that theme of compounding and growth, the company's maintained a consistent North star using the Markel style. Can you talk to us a little bit about that? Why is it critical to the company's success?
00:07:08
Tom Gayner : It is absolutely critical to the company's success, and it's really our statement, our creed, our belief. And Sam Markel started the company in the 1930s. He ran it for many years. He had four children who ran it after he died. Third generation were 12 cousins. Three of those 12 stepped up to run the business at that point, and that was Alan Kirschner, who was a cousin- in- law, and Steve and Tony Markel. And the three of them with great foresight recognized that a day would come when neither one of them would be running the company, but they wanted the company to continue.
So Alan took the responsibility to be the primary author, but Tony and Steve edited it and contributed. They wrote down the core values of what it meant to be part of this company. Zealous pursuit of excellence, hard work, keeping a sense of humor, laughter being a place where individuals could realize their highest potential and winning, all of those phrases and words can be found in the Markel style.
At the time that was written, it was 1986, so we were a small, tiny by today's standards insurance company. And the curious thing about that statement is that the word insurance is not in there. So Alan was open- ended in his imagination of what Markel could be and recognized that look, if we have these values and this is the way we're doing things, while insurance is the business we're in today, who knows where the future might lead? So he left that open- ended. And as the fellow who has been the one who has pushed the boundaries of what Markel does, very grateful for the fact that he left an open- ended statement there for us. So I'm grateful that Alan embraced the Jeffersonian view of creating an infinite space because we're taking every inch of it.
00:08:54
Clarke Murphy: I'd love to challenge you a bit on that open- ended imagination. As somebody said to me recently, they don't give prizes for second place on Wall Street. So talk about when Markel and you got tested by not strong performance because we're giving you the kudos of the long- term, which of course matters the most in investing. But there are bumps in the road and there could be a moment when they say, " To heck with this open- ended values matter and culture, you need to post the numbers this year." When did those moments arrive and how did you handle that?
00:09:25
Tom Gayner : We're not immune to looking at the numbers and perhaps having some dissatisfaction with them from time to time. But there's one specific story that I'll tell exactly to your point. So starting out here in 1990, for the first five, six years, our investment performance was very good and that putting of numbers on the board for 4 or 5, 6, 7 years in a row really did give me some time and space and license and credibility to endure a time when things got a little harder. So when you get to the end of the nineties, and I'm going to be imprecise about the dates here because to some degree I guess I like to black out the memory, as a value- oriented investor, I went through the biggest period of professional underperformance that I ever had. The gap between what was happening in the markets writ large versus our portfolio was really widening out in a very non- flattering and unhappy way.
And I'm going to give a lot of credit to Steve Markel because he exhibited one of the great exercises of leadership that I've ever been privileged to be part of, and that is Steve's office was right next to mine. So we would talk every day, but we did have a formal meeting once a month where I would bring in the details of the portfolio and talk about what we bought or what we had sold and talk about of our top holdings, any particular news, any developments, any changes in management, things of that nature. And Steve, and I will forever be grateful to him, would look at me at the end of that meeting and he would say, " I understand what you're doing and why you're doing it, and I understand what you're not doing and why you are not doing it. See you next month."
So there really was an 18 to 24 month period where the meetings ended like that every single month. That is a tremendous luxury. It is a tremendous gift to work under a leader who is able to stick to the long- term. I mean, the fact of the matter is if the long- term were easy, if there were never any ruts, if there were never any bad days, well then everybody would do it. But the reason so few people do it is because you do have to endure periods like that. And to be able to have a partner who was able to stick to the ideas, to stick to the values through the tough times, well that's what matters. Everybody sticks with it during the good times. It's the tough times when you start to know.
00:11:41
Clarke Murphy: You are known for your values, aside from the flattering introduction, but you are, you're known for integrity trust, but you're also known because you like to win. There are also moments when you think I can make money on that investment, either short or medium term, but I might not believe in it. You had those moments and what do you do then?
00:12:01
Tom Gayner : Yeah, I guess well, at age 61, the temptation of that continues to diminish as each year goes by. And earlier on in my career, somebody asked, " Tom, why are you such a long- term guy? Why are you such a long- term investor?" And I would confess because I felt so miserably as a short- term investor, I'm not against making money quickly, I just don't know how to do it.
The other thing is frankly, if you really do the math, the 12- month periods, the calendar year kind of marking, that's really an artificial convention. So what does one trip around the sun have to do with a company or a business? It's just an artificial way of describing things. What you really should do is you should embrace the discipline of net present value. So in any kind of decision, if you just want to be purely rational, you're faced with a decision, there's certain money out, there's money that comes back in, there's a discount rate at which you would compare the ultimate returns from the money you lay out. On day one when you're laying money out, that almost always looks like a negative decision or a negative cost. But if it creates future returns for a year, two years, five years, 10 years, you can look at this at what looks like a sacrifice or a short- term pain point is not that at all. It's the wonderful opportunity to plant a seed that's going to grow and become something substantial over a long period of time and something that produces way more than what the cost of that seed is.
00:13:26
Hoda Tahoun: It's such a fantastic way to think about long- term growth. And on that note, Markel went public in 1987 and the stock was valued at $ 8 a share. Today it's more than $1, 400 a share. The growth clearly didn't happen overnight and it's been steady, it's been persistent for more than three decades. And you're known to have that steady, consistent approach with long- term investing. How does that mindset also impact your approach to leadership?
00:13:56
Tom Gayner : Well, before we go down that path too much, the other person who deserves a tremendous amount of credit and an assist on the scoreboard for making this happen is my wife Susan. So in the early days of Markel, she was gainfully employed as a chemical engineer at the DuPont Company. So I always sort of had in my back pocket knowing that if I fail and do a complete face plant, I don't think I'm going to starve because my wife would carry me. And from time to time she has, I can't remember whether it was Charlie Munger or Charlie Munger quoting Ben Franklin who said, " It's this hard for an empty sack to stand upright." So I have just always been so fortunate and blessed to be surrounded by people who were on my team and made sure that the sack was never completely empty.
Tying that to your point of leadership, I wrote a memo to our board just last week and I talked about one of my jobs as the CEO is to help our people operate in an environment of psychological safety. We're all human beings, we all make mistakes. But if those mistakes were made with integrity, with good intentions, with learning, that's okay. I forgive you. It's okay. What did we learn from that? How will we do it differently next time? How will we get better because we made that mistake?
I find what someone will demand of themselves, if their heart is in the right place, is infinitely more than what you can ever demand of them. So to have an environment of psychological safety and people know that we care, we're in this for the long term, we're going to take care of our customers, we're going to take care of each other. We do need to win over time, but that's about as tight as we're going to be on the specs. I find that that creates a more high performing organization than would be the case if we tried to hold the horse with tighter reins than that.
00:15:48
Clarke Murphy: Our listeners will chuckle it because we have said consistently that a theme of what we call LQ, learning quotient, it was the organizations that continue to learn or executives who themselves continue to learn and lead from the front separates good companies from great, we believe in the last decade or so because change is happening faster, whether it's technology, whether it's investing, whether it's operations, but technology has changed the world and other things were a fad. How do you decide between the two as an investor?
00:16:24
Tom Gayner : Well, you work at it every day and you remain humble and whatever judgment you make and say it's subject to change. When you reach a conclusion, the other thing that you can describe a conclusion as is stopping thinking. So therefore, conclusion should be interim at best, and you should never turn off your curiosity and your desire to keep thinking. So whatever conclusion you draw about something like that, that is relevant as of one second ago. One second into the future might change. Stay flexible.
00:16:53
Hoda Tahoun: I love that.
00:16:54
Tom Gayner : In addition to holding myself to that standard, I can't hold the people, the organization to a different standard, that would be hypocritical and ineffective at the same time, and in fact, it would poison the organization. So when somebody has a point of view or comes to a conclusion and they have responsibility for making a decision based on the best available information they had at that time, I have to say, great, I trust you. Morgan Housel, who's on our board, says nobody is irrational from their point of view.
00:17:24
Hoda Tahoun: What are the criteria that you use to make investment decisions? What does a typical deal process look like? And I'm sure our listeners are going to be very curious to hear, how do you define fair price on a deal?
00:17:39
Tom Gayner : Sure. Well, I was smiling a little bit when you talk about typical situations because they seem relatively one- off and the old joke, once you've seen one, you've seen one. For a long time, the way in which we described how we make equity decisions in terms of buying public equities is we look for good businesses that have good returns on capital that don't use too much debt. Screen number one. Screen number two, management teams with equal measures of talent and integrity. Screen three, what are the reinvestment dynamics of a business? If they do well and they make money, what happens next? What can they do with the money they make? And fourth, can we do this at a fair price?
What I'd describe as a fair price, as a price that if I own the business and have nothing but the intrinsic returns of the business to create future returns, did I earn a reasonable profit and a reasonable rate of return from the business itself? If it does everything you hope, but you end up not earning a reasonable rate of return, that means you paid too high a price. Now similarly, a lot of time and effort is expended in the investment world on the work of valuation, and that's appropriate. That is as it should be. But I think that can tip over a little bit into too much focus on valuation and not enough on what the recurring internal intrinsic returns of the business are. Because if you pay what on the surface might appear to be a great price in the long run, if that business is not doing well, you're not going to earn a great return despite the fact that your math at the beginning looked pretty good.
Somebody says, " Well, what's the right price for this business?" You should answer a question with a question and you should say, what is your time horizon? Because if you look at the volume of trading of publicly traded securities, most securities that are bought and sold are not held for even a year. So even that 12 month convention would be way longer than what people are really actively doing in their buy and sell decisions. But if your time horizon is three years or five years or 10 years or longer, you start thinking about the business differently. And as a consequence, the math you would do would tend to be a little bit different than what others might.
00:19:58
Hoda Tahoun: That's so interesting, Tom. I really love that. And again, we're talking about the talent and the integrity piece as one of the key components of how to really think about a deal.
00:20:09
Tom Gayner : Again, lifted from buffet, almost word for word. And the way I would think about it or phrase it with my own twist is if you have somebody who has integrity, they're solid, but they're not that talented. They may be very nice people, they may be great neighbors or friends, but they don't have the talent to get the job done. So that only does you so much good. If you have people who are talented, who are great and skilled, but there's an integrity leak, well that's not going to end well, especially for passive shareholders in a publicly traded company. So we have no control. Or even frankly in our business itself, we have 20 some thousand people at Markel. I'm just one person. Can't do it all, can't do much of it. The vast majority of the work is done by other people. So they need to be talented and skilled at what they do and they need to have integrity such that we as partners of one another are treated fairly. And I think the good news about treating your partner fairly is that you in turn will end up being treated fairly yourself.
00:21:10
Hoda Tahoun: Such a great point.
00:21:12
Clarke Murphy: We'll be right back with Tom Gayner, but first we'll hear from Kurt Harrison, the managing director in our New York office. He'll outline why even though sustainability progress is being made, there are four common gaps that CEOs must bridge to be successful.
00:21:27
Kurt Harrison: Organizations the world over are increasingly committing to sustainability, something that seemed impossible just a decade ago. Did you know that a massive 80% of leaders now say they have concrete sustainability plans? That's according to our recent Divides and Dividends research. The big question now is how do you deliver on those promises? We know that in order for tangible progress to be made, sustainability needs to be integrated across an entire organization from strategy and operations to the daily decisions that leaders and frontline employees alike make. And yet our research has unearthed four distinct gaps in thinking and skillset that, unless addressed, will prevent leaders from doing this. Those four gaps are the motivation divide, the leadership divide, the accountability divide, and the mobilization divide. To get a deeper understanding of these gaps and how world- leading CEOs are bridging them. Click on the link to our Divides and Dividends research in the show notes.
00:22:33
Clarke Murphy: And now back to Tom.
You talk about return without too much leverage. So in the practical nature of this podcast, rates are up, a lot of leverage in the last decade, some of it fixed, some of it floating. Talk about leverage in today's world, in tomorrow's world, we're not asking predictability on interest rates. Talk about businesses you invest in and how much leverage is appropriate?
00:23:03
Tom Gayner : Well, I think this is a fascinating question and frankly it's one of the most topical and important in the investment landscape. So for a long time, really for a generation almost, leverage almost didn't matter because we've gone through a generation of where interest rates were just going lower and lower and lower all the time. I started talking about this with our board a number of years ago, and the analogy that I came up with at that point was interest rates are really a form of curfew and it's sort of an inverse form of curfew.
So when I graduated from UVA, I think our first mortgage and we bought a house immediately coming out of school, I don't know, it was something like 15%. It was insane. And every penny we had went to that mortgage. And a 15% interest rate is like having a 6: 00 PM curfew. So what that means is when you come home from school, you barely eat a little supper and you're done. You do your homework and you go to bed, there's nothing. Well, those interest rates came down and maybe they went from 15% to 10% or something like that, maybe that's a 7: 30 or 8: 00 PM curfew. So maybe you could come home and go outside and play with your friends a little bit. But really nothing bad was going to happen. And as interest rates kept going lower and lower, in essence, the curfew got later and later to the point where we got to, in effect, 0% interest rates, negative interest rates in Europe, that's like no curfew whatsoever. And no curfew whatsoever, bad things can happen.
00:24:32
Hoda Tahoun: Interest rates is curfews. What a great metaphor. Okay, so now for the question we ask all our guests, what is your redefining moment?
00:24:42
Tom Gayner : Well, the late nineties were one of them. When I got so out of whack with the markets and I told you that story about Steve, I also pursued some desperation learning moves. So for instance, I signed up for this class at Northwestern at that point, which was an investment analyst class. I thought maybe did I miss something? So I remember going to that class and it was a two- week period of study and at some point there was a professor in there and he was going through the discounted cashflow model techniques, and I knew what those were. And he pulled up The Gap Stores. I don't know if you remember this, but in the late nineties The Gap was white- hot and khakis were the thing. And they had the people in khakis dancing.
00:25:27
Hoda Tahoun: I remember that.
00:25:27
Tom Gayner : So he had this discounted cashflow valuation model up on the board and he was going through the gap and he was making these assumptions of what your growth rates would be and what the ultimate discount rate of growth rate would be. And I looked at it and I said, " Excuse me, Professor, but I understand the mechanics of this, but those growth rate assumptions just seem wildly high for a business like that, which admittedly is doing quite well, but I just can't get comfortable in making 5, 10, 20 year assumptions that that would continue to be the case." And he really wouldn't engage with me on that.
So he pushed back. This two week class that I was going to take, I think this was on day four, and I got such a swirling headache from trying to argue with him that I literally walked out of the class and didn't go back. Because I said, I know how to do discounted cash flows. It's the assumptions that really determine whether those were useful models to you or not. So I went and watched the Cubs baseball game instead and did not invest a Gap, and that was a transformative moment for me that sometimes the things that are mathematically justifiable and can be written out and displayed and modeled on a spreadsheet may or may not be truthful. As someone said, the map is not the territory. I think Munger says, " All models are wrong. Some just happen to be useful."
00:26:53
Clarke Murphy: But equally, you trusted your gut is what I hear also.
00:26:57
Hoda Tahoun: Yeah.
00:26:57
Tom Gayner : Well, I just thought I wasn't insane and it was a complete sanity check. So it was something that either could or could not be true. For a while, Walmart had a period of time when it was an extraordinarily rapidly growing company and they were expanding their footprint, but it was no secret to the marketplace. So the stock was going up, the earnings were going up, everything was up, up, up, up, up, and we were on the sidelines. We did not own it. We should have. I calculated that every single man, woman and child in America would need to be spending $ 60 a day at Walmart for those numbers to come true. And I just didn't think that could happen. Now, it went on for a while, but it didn't go on for 20 years or 10 years. So just to be able to detach yourself from the frenzy of day- to- day stuff and get back to those 10 to 20 year kind of time horizons, it changes your decision- making process fairly profoundly.
00:27:52
Hoda Tahoun: I think it's such a great point. Tell us about how you look at the pendulum of optimization versus satisfaction.
00:28:01
Tom Gayner : Well, those two can get in the way of one another and the folk wisdom saying is best is the enemy of better. The business of investing, of people, of psychology, of emotion, of irrationality, that's not an equation that can be optimized in my opinion. A lot of people try and a lot of people have tremendous academic credentials and ability to crunch a lot of numbers working towards optimizations. But I think being a reasonably good satisfier gets you into the 80th percentile and you use some of those tools, but not all of them. And you're humble about recognizing their limits such that you can say sometimes this is good enough and be comfortable with that and let a little time pass to show you what the answer ultimately is. I do not know how to hold myself to the standard of pure optimization in the markets because I just don't think that that's a reasonable standard.
At the same time, there can be a tendency, and my colleagues appropriately tease me about this, as does my wife, satisfaction can be an excuse for laziness. So to say it's good enough when it's not is an equal and opposite error. So you have to have some discipline, you have to have some rationality about that. You have to have some north star that guides you and both that can be the things you read, the things you understand, the things you know to be true. And to have people in your life who you are willing to let them tell you the truth and to be vulnerable to them and not hide or not be unwilling to hear bad news. That's very important to have people in your life that you can trust to tell you the truth.
00:29:47
Hoda Tahoun: Such a great point. So Tom, we like to end each podcast with some rapid fire questions. This is where we'll ask you a series of questions and you respond as quickly as possible. Are you ready?
00:30:01
Tom Gayner : We'll find out, won't we?
00:30:03
Hoda Tahoun: Okay, let's get started. When was the last time you were wrong and what was it about?
00:30:08
Tom Gayner : There's so many answers to that. I don't even know where to begin. Probably the last time I was wrong today was with my choice of breakfast, but I'm going to leave that at the rules.
00:30:18
Clarke Murphy: Who was your mentor that had the biggest impact on you?
00:30:20
Tom Gayner : My father.
00:30:21
Hoda Tahoun: And what do you think is the key to living a good life?
00:30:25
Tom Gayner : Live each day, embrace each day. And I think there's actually a fair amount of substance to that. For instance, I was reading something recently that talked about the difference between goals and systems. And common goal would be lose 10 pounds. Everybody's had that goal somewhere along the way, including me. But if you think about it, every second that goes by that you haven't lost 10 pounds, you're a loser, you've not accomplished your goal, that creates negative psychological energy among other things. It's way, way, way more productive to have a system that encompasses what you eat, how you exercise, how you take care of yourself that probably would support good health. And by the way, you might drop 10 pounds if you follow the system. So really for a lot of things in life as opposed to just stating some sort of goal, thinking one step further and thinking what sort of habits, what sort of behaviors, what sort of actions, what sort of things to not do would be supportive and helpful in making that good thing, which you call a goal, more likely to happen than not.
00:31:28
Hoda Tahoun: I love that, Tom. So really what you consistently think, do, believe, et cetera ends up becoming the recipe for that life? I know a number of globally renowned coaches who really talk about this topic from Dr. Joe Dispenza, Mel Robbins, David Goggins, they all talk about this as being the cornerstone of how to build the life and curate the life that you want.
00:31:54
Tom Gayner : What you do is who you are.
00:31:56
Hoda Tahoun: Yeah.
00:31:57
Clarke Murphy: Absolutely.
00:31:57
Hoda Tahoun: Absolutely.
00:31:58
Clarke Murphy: Tom, we can't thank you enough. You've helped us redefine a little bit about long- term and short- term. And I find it really interesting that your start in the investing business in the firm you joined we're both G3. Your grandmother made you a third generation and she taught you to think about investing in the long term. And then you join the Markel family where the third generation defined as they went for permanent capital in writing what were the values and what would be the values of how Markel would operate. And while we talked about winning and trust and high potential in laughter is the undercurrent of how a great company will perform, Steve Markel left it open- ended enough to say that we don't know where the future will lead us, so we have to adapt. Not many companies, when defying themselves, can leave it open to who they might become later on.
And we think about long- term and short- term performance. Your success was when you underperformed in the short term, you had the greatest gift there could be in a company which is a boss who said, " I back you." You went into your boss and said, " Here's what's happening. It's not working right now." And he said, " I understand why and why not. You keep going." And whether it was your wife's partnership and giving you confidence or your boss's trust, knowing you were fully supported, helped you do the right thing. And you've now created this environment of psychological safety that people can make mistakes and learn from them. You're giving them the long- term confidence that others have given to you, which is the real learning here. And that's a culture of a high- performing organization. When we think also about performance over time, you talk about talented people, but if they don't have integrity, it's not going to end well. And that fair treatment gets fair treatment, and ultimately, talent, integrity can match up and end well if they're aligned.
The last thing I'd say as we learned from you is about trusting your gut. The model might be taught by the great professor at a great school, but take a sanity check and say, does this make sense to me? Don't fall into the trap of saying, well, we're doing well so we're okay. Adapt along the way, or you'll become satisfied and lazy. And your habits and how you approach life from a systemic standpoint are more important day- to- day to achieve a goal than just setting a goal and saying, did I win or did I not? Tom, this is fantastic. People should listen and learn from this one.
00:34:28
Hoda Tahoun: Thank you so much, Tom. It was amazing.
00:34:30
Tom Gayner : Thank you. It was delightful to be with you.
00:34:32
Clarke Murphy: Thank you for joining us, Tom.
00:34:35
Hoda Tahoun: Thanks for joining us on this episode of Redefiners. For more compelling insights from leaders across industries and around the world, listen to Redefiners wherever you get your podcasts and
00:34:46
Clarke Murphy: To learn more or to get in contact with us, visit our website russellreynolds. com, find us on LinkedIn and follow us on Twitter @ RRAOnLeadership.
